Key accounting principles in the guidance note?
What are the key accounting principles mentioned in this guidance note?
- All derivatives should be accounted for at the inception and measured at fair value too at the inception as well as at every reporting period.
- If hedge accounting is not applied, then the derivatives should be measured at fair value. Fair value changes should be recognised in P&L.
- If hedge accounting is applied, then the risk management objective and the risk that is hedged should be identified and documented. Also, the entity should satisfy how the risk management objective is being met by the respective derivative contract. This should be done at the inception of the hedging relationship as well as on an on-going basis.
- An entity may apply hedge account for certain contracts and for certain other contracts it may not apply hedge accounting. In other words, hedge accounting for the derivative contracts is purely optional and not mandatory. However, if hedge accounting is not applied then the derivative contract should be measured at fair value and accounted for at the inception as well as at every reporting period as mentioned in (1) above.
- An entity should make appropriate disclosures in its financial statements, including its accounting policies, risk management objectives and the hedging activities that the entity has undertaken.